Both a perfect competitor and a monopolistic competitor choose output where MC MR, and neither...

Question

Both a perfect competitor and a monopolistic competitor choose output where MC

MR, and neither makes a profit in the long run. How is it, then, that the monopolistic competitor produces less than a perfect competitor?

David · Accepted Answer

The monopolistic competition model is an intermediate case between monopoly and competition. It 
does not differ much from pure competition with respect to its welfare effects. It does, however, 
have some minor restrictive impacts. If a purely competitive market in long run equilibrium were to 
become monopolistically competitive welfare would be reduced by a slight reduction of output and 
a slight increase of price. The demand curve, faced by the monopolistic competitor, though very 
elastic, is less than perfectly elastic. Its marginal revenue is less than price,

Both a perfect competitor and a monopolistic competitor choose output where MC MR, and neither makes a profit in the long run. How is it, then, that the monopolistic competitor produces less than a...

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